U.S. discount homes brokerage Redfin is stepping deeper into mortgages, having agreed to buy Bay Equity Home Loans, a nationwide lender, for $135 million in cash and stock.
The move gets Redfin closer to being a one-stop shop for real estate services, pitting it against a crowd of marketplaces and other proptech firms heading the same way.
The acquisition would significantly ramp up Redfin’s mortgage business, which launched in 2017 and, as of this week, operated in 23 states plus Washington, D.C. Bay Equity is a licensed mortgage lender in 42 states.
Source: Redfin
“Bay Equity helps match the scale of our nationwide brokerage of approximately 2,400 agents, increasing the number of brokerage customers whose homes Redfin can finance,” Redfin stated in an announcement. “This acquisition accelerates our strategy to become a one-stop shop for brokerage, lending and other services.”
“Given its scale, Bay Equity can be more efficient at producing loans and can get better terms when selling those loans to investors,” the announcement reads. “These advantages will let Redfin generate more profit from each loan while keeping rates low for our customers.”
“With Bay Equity’s geographic presence and full product suite, we’ll be able to offer mortgages to a larger share of Redfin’s home-buying customers right away, including jumbo loans and loans for veterans and folks with lower credit scores,” Adam Wiener, Redfin’s president of real estate operations, wrote in the announcement.
Bay Equity has generated profits each of the last three years, the announcement stated. Redfin has not yet posted a profitable year.
After the deal closes, the Bay Equity management team will continue to operate under the Bay Equity name, while Redfin will shut down its in-house mortgage brand. Some of Redfin’s own mortgage staff will be integrated into the Bay Equity team; however 121 mortgage employees will be laid off, the company stated.
It added that some of the laid-off workers may be reassigned elsewhere in the company, for example to its growing real-estate support, title or IBuying organizations. Others will leave with severance pay of 12 to 26 weeks, depending on seniority.
“This is a formidable combination,” Bay Equity CEO Brett McGovern wrote. “Redfin is a technology leader and the alignment positions us both to thrive in a changing mortgage market. In addition to our established book of business, we will benefit from the customers generated by Redfin’s more than $25 billion in real estate transactions each year. Plus, we will have the opportunity to present Bay Equity to Redfin’s more than 40 million monthly online visitors.”